India 2023 Bonds Gain With Yield Falling Toward Eight-Month Low

June 13 (Bloomberg) -- India’s government bonds due 2023
rose, pushing the yield toward an eight-month low, after
inflation slowed more than economists projected.

Consumer prices climbed 8.28 percent in May from a year
earlier, compared with 8.59 percent in April, official data
showed after the close of markets yesterday. The median of 40
estimates in a Bloomberg News survey was for an 8.4 percent
gain. A separate report showed factory output rose 3.4 percent
in April, versus the 1.9 percent predicted. The Reserve Bank of
India will conduct a 14-day term repurchase auction for 610
billion rupees ($10.3 billion) today.

The yield on the 8.83 percent notes due November 2023 fell
two basis points, or 0.02 percentage point, to 8.53 percent as
of 9:21 a.m. in Mumbai, according to prices from the RBI’s
trading system. The rate, which climbed one basis point this
week, reached 8.51 percent on June 6, the lowest for a benchmark
10-year bond since October.

“We expect the RBI to defer further rate hikes, but are
unlikely to reduce rates as well,” Radhika Rao, an economist at
DBS Bank Ltd. in Singapore, wrote in a research note today.
“The strength of the south-west monsoon and next month’s budget
will be important variables for monetary policy.”

RBI Governor Raghuram Rajan, who has raised the benchmark
repurchase rate by 75 basis points since taking charge in
September to rein in prices, left it unchanged at 8 percent for
a second straight meeting on June 3.

Ten-year notes rallied last week, with the yield slumping
13 basis points to 8.51 percent, after the central bank said it
could ease monetary policy should inflation slow more than
anticipated. The RBI aims to curb consumer-price gains to 8
percent by January 2015 and 6 percent a year later.

One-year interest-rate swaps, derivative contracts used to
guard against swings in funding costs, fell two basis points to
8.22 percent, data compiled by Bloomberg show. They rose six
basis points this week after reaching 8.16 percent on June 6,
the lowest level since July 2013.